Neobanks
Neobanks are bringing the benefits of traditional banking onchain, combined with the speed, yield, and flexibility of DeFi. This means routing deposits through an exchange, a staking layer, a stablecoin and yield venues. The customer just sees their balance and the UI they’re already used to. Everything else sits under the hood. Neobanks integrate with core protocols such as Morpho, Aave, Arbitrum, and Uniswap to provide onchain access and generate yield for their customers. While they may abstract away the complexities of DeFi, neobanks still expose depositors to the underlying crypto-native risk.
Risks faced
A neobank’s exposure is the sum of every venue it routes deposits into, and most of it sits outside their direct control. Consumer expectations raise the stakes, because balances presented like a bank account are expected to behave like one.
Centralized exchange failure at a venue holding customer balances, from halted withdrawals to an exchange-wide haircut
Stablecoin depeg on the assets those balances are denominated in
Validator slashing where customer deposits are staked
Smart contract exploits in the yield venues behind the product
ETH liquid staking and restaking token depeg on staked balances
Oracle failure and manipulation in any lending market the product routes into
There are a few ways neobanks can mitigate the risk they and their customers face. Native Protocol Cover can be structured to provide a baseline of coverage for all of their users. Products such as Depeg Cover, Slashing Cover, or Custody Cover can be deployed to protect against some of the back-end operational risks neobanks are exposed to. On the consumer side, Nexus Mutual can create Protocol Cover for a specific neobank, allowing end users to take risk management into their own hands. Working with our partner OpenCover, neobanks can natively embed cover options in their deposit flow.
Contact us to put cover behind your customer balances
Subscribe to our newsletter
Be the first to know about our latest news, announcements and events!
